Finance 101
teaches us the different types of debt.
Unfortunately, many people have been
advised by grandparents, family and
friends that all debt is bad. This common
knowledge is 100% incorrect. Not all
debt is equal.
Common sense tells us to pay off purchases
for personal consumption items like:
cars, credit cards, vacations, boats
and your house mortgage ASAP. These
expenditures need to be paid for with
AFTER TAX dollars. That is to say one
needs to earn a wage, pay the income
tax, then pay the bank interest and
principal payments to slowly own the
car, boat or house outright. The interest
cost on these purchases can be hundreds
of thousands of dollars. You just have
to look towards the bank's profits to
know that this is true.
On the other hand business people have
learned that interest cost on money
borrowed for the business is an allowable
expense deduction before income tax
is paid. |
|
The same
is true for interest costs on investments
(see - Canada Revenue Agency, forms
and publications, Interest Deductibility
and Related Issues No.: IT-533
section 31).
Assuming a business person does not
mind paying 6% interest to finance the
business if they are confident the business
can earn a profit of 15%. As this business
model will net the owner a profit of
9% (15% - 6%). This model of using debt
to one's advantage is an example of
SMART DEBT.
Deduct My Mortgage™ financial
strategy facilitates a restructuring
of your debt so that the interest becomes
tax deductible. Your debt is converted
from BAD to SMART. |
